Kingston Co. uses the percentage-of-receivables basis to record bad debt expense.

It estimates that 1% of accounts receivable will become uncollectible.

Accounts receivable are $420,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $1,500.

(a) Prepare the adjusting journal entry to record bad debt expense for the year.

The journal entry to record the bad debt expense is shown below:

Bad debt expense A/c Dr $2,700

To Allowance for doubtful debts $2,700

(Being bad debt expense is recorded)

The computation of the bad debt expense is shown below:

= (Accounts receivable * estimated percentage given) - (credit balance of Allowance for Doubtful Accounts)

= ($420,000 * 1%) - ($1,500)

= $4,200 - $1,500

= $2,700